The Domestic Force Awakens

December exports accelerated above our and consensus expectations

Beating our as well as the survey’s estimate, December exports accelerated 6.98% MoM (-17.66% YoY due to high-base) to USD11.9 bn on the backdrop of raising demand from Singapore, India, Japan, China, United States and South Korea. Additionally, higher December exports were also supported by larger aggregate volume and rising aggregate prices particularly from non oil-gas segment. On the sectors, December figures were mainly supported by exports for palm oil (+14.8% MoM), non-knit apparel (+30.0% MoM), ores ashes (+366.6% MoM), and tins (+128.4% MoM). At this stage, the December figure brought 2015 full-year total exports to reach USD150.2 bn (-14.6% YoY).

December imports: Increases in two consecutive months driven by govt spending

Following prior month’s level, December total imports surged to USD12.1 bn, up 5.23% (-16.0% YoY on high-base) mainly on the back of higher domestic demand for offshore raw materials and capital goods across several products, including mechanical machinery (+11.3% MoM), iron and steel (+13.4% MoM), chemical organics (21.6% MoM), and vessels (+312.8% MoM). Higher total imports were also supported by accelerated government’s capital spending in the end of 2015. This development was also derived from relatively stable Rupiah, reducing imported aggregate volume at the same time raising the aggregate volume. As a result, 2015 full-year imports reached USD142.7 bn (-19.9% YoY).

December external trade surplus narrowed to USD236 mn on rising imports

All in all, beyond than our and consensus expectations, the December trade balance booked surplus of USD236 mn but in the slower pace compared to November’s level of USD408 mn. This figure brought 2015 full-year trade surplus to reach USD7.5 bn, the largest annual surplus in the past four years.

Expected imports to further accelerate this year; surpluses may be trimmed

We believe in 1H16, import’s trend to normalize, following a weakening pattern similar to 1H15 as private consumption should remain subdue and the full positive impact from government spending will be more seen in 2H16 and. Hence, given assumption that exports will also remain sluggish on plunging oil prices, we expect 1H16 trade deficit to record a surplus. On the flip side, we see a turnaround may be discerned in 2H16. Supported by monetary and fiscal expansive policies, we believe private consumption to gradually pick up on lower BI rate while government infrastructure spending should also accelerate backed by better spending disbursement. Those two factors will expedite import demand going forward, reaching USD147.9 bn, +3.59% YoY. Thus, given a relatively weak exports which we estimate to only grow 0.16% YoY to USD150.5 bn, we project Indonesia trade balance should book full-year surplus of USD2.6 bn this year. This position will be lower than 2015 external trade surplus level of USD7.5 bn but with better quality as domestic demand is expected to start expanding in 2016.